Gujarat Commission Sets Average Pooled Purchase Cost for Various Licensees

The Gujarat Electricity Regulatory Commission (GERC) has determined the average pooled purchase cost (APPC) for various licensees from the financial year (FY) 2014-15 to FY 2018-19.

The Indian Wind Power Association (IWPA) had filed a petition against the Gujarat Urja Vikas Nigam Limited (GUVNL) and its subsidiary companies, Torrent Power Limited and MPSEZ Utilities Private Limited (MUPL) for the determination of the APPC for each year starting from FY 2009-10 in order to enable the wind generators of Gujarat to go for the renewable energy certificate (REC) mechanism.

The commission has come up with the new costs for the distribution companies that have been purchasing electricity at different prices from various sources. The commission has also stated that the APPC of distribution licensees should not exceed the APPC of the state. Now, since the Gujarat commission had already passed relevant regulations in March 2014, the commission said that the determination of APCC needs to be from FY 2014-15.

GERC

Keeping the intent of the REC regulation, it is necessary to make a balance between the APPC rate added with the cost of REC component vis-a-vis the tariff of renewable sources; we are of the view that APPC of distribution licensees should not exceed the APPC of the state as a whole,” the commission noted.



How does APCC affect the REC mechanism?

The pooled purchase cost of power to be taken into consideration under the REC mechanism has to be the average pooled purchase cost of power of the previous financial year, and the same has to be modified regularly.

When the pooled purchase cost is increased, the floor price of REC will come down as the floor and forbearance prices of RECs are subject to change at the expiry of each control period.

Accordingly, a wind power project under the REC mechanism will be viable only when the realization from the power component increases to compensate the reduction in REC prices.

The CERC determines floor price and forbearance price, referring to the APPC of various states.

The cash flow for the developers under the REC mechanism depends on the REC price discovered in the power exchange and APPC allowed to them by the local DISCOM in a state. In the event of the APPC is lower than what has been taken by CERC for the determination of the REC price band, there could be a viability gap for the REC developers, especially in cases where the price discovered in the power exchange is closer to the floor price. REC mechanism is an alternative to preferential tariff mechanism for the recovery of the cost and the same should be viable to renewable generators. The REC price discovered in the power exchange plus the APPC should enable the developer to recover their cost. The viability will be ensured if an investor gets at least the floor price for the REC and the APPC for the electricity component.

“It is, therefore, imperative that the APPC is determined by this commission for each year starting from FY 2009-10 in order to enable the wind generators in Gujarat to opt for REC mechanism as the tariff to be given to the power producers under the REC mechanism for the supply of the contracted wind energy must be the APPC of the distribution licensees in the previous financial year as determined by the commission annually,” stated the commission.

Moreover, one of the respondents, Torrent Power, had contended that the APPC needs to be decided for the state as a whole and not distribution licensees wise. This was not acceptable to the commission as each licensee is operating in its license area independent of each other, and their cost of power purchase is distinct from each other considering the amount, source, fuel, price, etc.

Hence, in the commission’s opinion, it will be unfair to allow a single APPC for the state as a whole. Even the regulations of the GERC do not provide to allow single APPC for the state as a whole,” the order stated.

Earlier this year, the CERC had issued an order in favor of wind developer Enn Enn Corp Limited, which had filed a petition against the rejection of its request for RECs by the National Load Despatch Center. The wind developer had appealed against the rejection of RECs between April and November 2017. Enn Enn Corp has three wind power generating stations in Gujarat with a cumulative installed capacity of 12.6 MW.

In April 2019, the central commission passed a similar order when it asked the national load despatch center to issue RECs for a 1.5 MW wind energy project. This petition was filed by Eingur Wind Energy Private Limited, which had approached the commission about a delay of 72 days in applying for the revalidation of accreditation as an eligible entity under the REC mechanism. NLDC and Tamil Nadu Transmission Corporation Limited were the respondents in this case.

Image credit: Stan Shebs [CC BY-SA 3.0]